The Chinese stock market fell on Friday after the release of a row of data on the current account, which hit off the mark. The growth of exports has unexpectedly slowed in March for the first time since February last year, raising the question of sustainability of the Chinese economy expansion against the backdrop of escalating trade tensions with the United States.
Imports in March exceeded expectations, which somewhat softened investors’ reaction to the data, suggesting that domestic demand could mitigate economic shocks, in particular, the trade conflict with the US. The Chinese authorities are trying hard to “reorient” the export-dependent economy to the consumer, but even for 2016 exports accounted for an impressive 20% of GDP. In the United States, this figure is only 12%.
It turns out that last month the Chinese economy was faced with a non-traditional balance of payments deficit and the first slowdown of this component of GDP (net exports) since February last year. Of course, this will create speculation about what role the US trade tension has played here, whether the drop in exports is due to the reaction of Chinese exporters, etc. Recall that the cause of increased tension in mutual trade between the two countries was the displeasure of Trump US trade terms with China, in particular, the high trade deficit, as well as the accusation of implicitly forcing the transfer of technology from American companies operating in China.
By the way, in support of the fact that Chinese exporters are closely following the situation in international trade, the growth of exports in February is at an impressive 44.5%. In addition, one should take into account such an important seasonal factor as the Chinese New Year, which began on February 16, and probably forced exporters to increase shipments before the month of uncertainty. The strengthening of the renminbi by 3.7% against the dollar in the first quarter of 2018 also played a role in reducing exports and stimulating imports.
Nevertheless, in annual terms, Chinese exports to the US increased by 14.8% compared to the same month last year, while imports added only 8.9%. Chinese exporters will remain under pressure due to the strong yuan and the uncertainty of terms of trade in the US, so the readings of relevant indicators even in line with forecasts will be a good sign for investors.
With regard to the risks associated with trade wars, this week was stingy for new details, in particular, the verbal escalation between the US and China, which allowed investors to spend a week in relative peace. Chinese leader Hee Jinping used a conciliatory tone in a speech on Tuesday, promising to open the Chinese economy for foreign capital. Trump arbitrarily wrapped the words of Xi in his favour, regarding them as concessions to China and posting a tweet that they «will always be friends». It is possible that the authorities of both countries have come to understand the harm of the public spat thereof.